Before You Begin
Though encrypting your flash drive is obviously a very important measure, there are a few other things you can do to prevent such things from occurring.
The obvious goal is to just not lose it in the first place. Keeping it with other important things that you really don't want to lose is probably the easiest way: on your keyring, in your purse, whatever. No matter how you carry it around, make a habit of checking for it.
It's also suggested to keep sensitive information on a separate flash drive from the one that you use for more general use. This way, even if you lose your flash drive, it's more likely it'll be the one you more commonly use, which will not have sensitive data on it.
Also, some versions of some distros do not work with auto-mounting encrypted flash drives, instead requiring you to do it manually, such as Debian Etch and Ubuntu Gutsy Gibbon.
Without further ado, USB device encryption software available for Linux: